- Unemployment rates and wage growth in good form
- Disappointing retail sales and manufacturing output
- Today’s US consumer price index could weigh in on decision
- Pressure building on FED to fulfill promise
- Could have implications for GBPNZD and GBPAUD
Does the economic data support a FED hike in September?
The US economy has gone from strength to strength this year, despite disappointing non-farms in May, the economy has shown signs of significant improvements for Q2. As we head into Q3, retail sales have slightly disappointed but unemployment remains low, a key performance indicator for the FED chairlady Janet Yellen.
Today’s consumer price release at lunchtime could weigh on the FED’s decision next Wednesday, and whilst many have speculated that a FED hike is unlikely in September, December remains a golden opportunity if data supports it.
Yellen could give further hints to an upcoming hike
Although it is unlikely a hike will happen as early as September, her meeting next week could offer further clues as to whether one in December is plausible. Given the upcoming US elections, the FED may want to analyse how the economy is performing given the controversial candidate options. The FED are an independent body to the Government, but they still need to consider the implications of say, a Trump victory and the impact it could have on the jobs market or consumer spending.
That being said, there has been mounting pressure on the FED to act, they last hiked rates in December 2015 and originally promised 4 further hikes in 2016. As of yet not a single one has materialised.
A FED hike could weaken commodity currencies
With interest rates from commodity currencies shortening, the gap between riskier currencies and their higher rates compared to the US Dollar will shorten, making the US Dollar not only a safe haven currency but more attractive for longer term investment. We could see a weakening of the Australian Dollar and New Zealand Dollar as a direct result of a US interest rate raise.
If you are buying the US Dollar in the near future, and FED hike does not materialise next week I am expecting the US Dollar to weaken as we approach the US elections.
There could be a window of opportunity to buy before December, which is when the FED are expected to raise rates.